Thanks to a steady recovery, U.S. farm income this year will be the highest since 2013, the peak of the commodity boom, said the government on Wednesday. The USDA forecast net farm income, a broad measure of profits, at $96.7 billion this year, with higher crop and livestock revenue offsetting the end of two years of mammoth Trump tariff payments.
The February estimate — the first of the year — is somewhat tentative because it is issued before crop production, season-average prices, or farm expenditures are known. But it points to the fourth year in a row of higher income, and a rise of 3 percent from 2019. Net farm income tumbled to $62.3 billion in 2016, half of the record of $123.7 billion set in 2013, and has been increasing since.
Direct farm program payments would account for 15 percent of farm income this year, a much more common share than the 25 percent — the highest in 13 years — seen in 2019. Direct payments include trade war aid, traditional crop subsidies, and land stewardship outlays but not crop insurance indemnities.
“This overall decrease reflects lower anticipated payments from the Market Facilitation Program,” said USDA economists. They estimated that producers would receive $3.6 billion this year through the MFP, the administration moniker for trade war payments, some $10.6 billion less than in 2019.
“That could change if the president thinks there is a need for new MFP payments,” said Joe Glauber, former USDA chief economist. The $3.6 billion, released earlier this week, was the final tranche of $14.5 billion in cash earmarked for farmers and ranchers to mitigate the impact of retaliatory tariffs on 2019 production. Producers received $8.6 billion from the MFP for 2018 crops and livestock.
The USDA revised its estimate of 2019 net farm income to $93.6 billion, an increase of $1.1 billion, due mostly to larger livestock revenue and direct payments.
Farm production expenses are forecast to climb by $10 billion, or 3 percent, to $321 billion this year, after three years of stability. “That actually restrains what would otherwise be a larger increase in farm income,” said Pat Westhoff, head of the FAPRI think tank.
Glauber and Westhoff noted, as did the USDA economists, a seeming anomaly in the forecast: Net farm income would rise by 3 percent in 2020 yet net cash farm income would fall by 9 percent.
“The divergence … is because net cash farm income forecasts include $14.7 billion in cash receipts from the sale of crop inventories in 2019 and $0.5 billion in 2020, contributing to the 2020 decline in net cash farm income,” said the USDA. “Net farm income excludes those sales from inventories as it measures production in the year in which it occurred, not the year in which it was sold.”
“It’s always hard to know whether to focus on net farm or net cash,” said Westhoff. Net farm income, as a measure of wealth or profits, “is in some ways more inclusive,” he said, but net cash farm income “is a good indicator if you want to talk about cash flow.”
Assessments of the farm sector’s health have sometimes taken a “glass half-full, glass half-empty” tone as the sector recovers from the collapse of the commodity boom and copes with comparatively lower commodity prices and the impact of the trade war. While income rose in recent years, federal bailouts were a key factor in 2018 and 2019. The debt-to-asset ratio, a widely followed indicator of financial health, has climbed slowly for several years, though this year’s projected ratio of 13.6 percent is not worrisome. Farm sector equity is rising in 2020, with assets mounting more rapidly than debts.
But when “current assets” — cash and assets that can be converted to cash — are compared to “current debts” — liabilities due to creditors within 12 months — the so-called current ratio is weakening. “Working capital — the amount of cash and cash-convertible assets minus amounts due to creditors within 12 months — is forecast at $52 billion in 2020, a 15 percent decrease from 2019,” said the USDA.
Farm cash receipts are forecast to rise by $10.1 billion, or about 3 percent, to $384 billion this year, with livestock supplying $8.2 billion of the gain “following growth in receipts for hogs, milk, cattle/calves, and poultry/eggs,” said the USDA. “Total crop receipts are expected to be largely unchanged, increasing $1.9 billion.”
The USDA’s farm income forecast is available here.